If you’re a Non-Resident Indian (NRI) investing in Indian mutual funds, there’s a good news 
Your capital gains from your Indian mutual funds might not be taxable in India at all— especially if you’re living in countries like Singapore, UAE, or Mauritius
A few weeks ago, the Income Tax Appellate Tribunal (ITAT) in Mumbai passed a crucial judgment in favour of an NRI investor.
The NRI, a Singapore resident, had earned ₹1.35 crore in short-term capital gains from Indian mutual funds and the big question was where should these gains be taxed?
- Is it India, where the mutual funds are based or
- Singapore, where the investor lives?
Let’s see what the NRI did. In the return, she disclosed the capital gains and claimed exemption for these capital gains (as per DTAA between India & Singapore), which provides that the gains would be taxable only in her country of tax residence (Singapore) and not in India.
What is DTAA? (Double Taxation Avoidance Agreement)
Sometimes, you might be taxed twice — once in the country where you earn the income, and again where you live. DTAA is a treaty between 2 countries to make sure you don’t pay tax on the same income twice. You can read more about it here.
While processing the ITR, the income tax department (ITD) rejected the claim and taxed the capital gains, by contending that the mutual fund units derived substantial value from Indian assets and, as a result, would be subject to tax in India.
Eventually, the case was presented in the ITAT. The Mumbai bench of the ITAT ruled in favour of the taxpayer, stating that the capital gains were exempt based on the following points:
- Article 13 of the India-Singapore DTAA says that capital gains are taxed in the country where the asset is located. This generally covers assets like immovable property and shares.
- However, mutual funds are not specifically mentioned in Article 13. So, the gains from mutual funds fall under Clause 5 of Article 13 — commonly known as the residual clause.
- This clause says that if a capital asset doesn’t fall in the above-mentioned categories, then the gains are taxed in the country of residence of the investor, which was Singapore.
And because Singapore doesn’t levy any tax on capital gains, the mutual fund gains in this case were completely tax-free.
Here is an extract of Article 13 from the DTAA between India and Singapore.
To sum it up:
If you’ve invested in shares or real estate in India, you may have to pay tax here as per the Indian tax laws and the DTAA.
But if you’ve invested in mutual funds, your gains could be exempt — depending on the country you live in and its DTAA with India.
Here is a list of few countries where you can claim the tax exemption on gains from mutual funds:
- UAE
- Singapore
- Switzerland
- Mauritius
- Netherlands
- Spain
- Portugal
Finally, if you are an NRI who is eligible to claim this deduction, then you need to:
- Get a Tax Residency Certificate (TRC) from your country of residence.
- File Form 10F with the Indian tax department. You can file this online on the e-filing portal.
- File an income tax return (ITR).
- Keep supporting documents handy — like bank statements and mutual fund transaction records.
In case there was some TDS deducted in India, you can claim a refund under DTAA provisions while filing your ITR.
Here’s another post if you want to learn more about NRI taxation.
Have any other questions around DTAA for NRIs? Feel free to ask them below.